⇥ IP lawsuits and you: a short guide to preserving your sanity when you’re the small guy

While researching a story about the Lodsys affair, I came across an unusually high number of gratuitous legal opinions from people who have absolutely no idea what they’re talking about. Worse, the advice from people who should know what they’re talking about is even worse.

Being the slightly unbalanced person that I am, I feel compelled to point out a few things.

Lawsuits and you: don’t be the small guy

The main reason why I’m writing this is that I was, once, the target of a lawsuit myself. I’m not talking here about legal threats, nasty letters, or the likes; I speak of a full-fledged lawsuit brought against a small company of which I was a director by a much larger opponent with deep pockets and a veritable army of lawyers at their disposal—a lawsuit that ultimately took nearly ten years, thousands of hours of unpaid work, and several millions of dollars to resolve.

Unless you have plenty of disposal income, a lawsuit is an incredibly disruptive event in your life. If you’re the small guy, personal and financial ruin stares you blankly in the face, and you can’t afford to blink.

The psychological impact can be crushing and, inevitably, almost everyone around you only makes things worse and worse.

The first thing one learns is that the legal process has absolutely no connection with reality or common sense. Unless the relative power of the opponents is balanced, there is no such thing as a quick resolution, and the courts, which must maintain the appearance of impartiality, will bend over backwards to allow all the parties the most latitude possible. When you’re up against a corporation with much greater resources than yours, they will (and, in all fairness, they must) abuse that privilege to their largest possible advantage.

The judicial process, in other words, is a harsh mistress whose primary objective is its own self-preservation. Justice in the moral and ethical sense of the word, which is what you’re after, is a much distant second goal.

Lawyers don’t throw exceptions

Believe it or not, this is a very difficult concept for a lawyer to explain. At a moment where your life has been turned upside down and all you want is a little certainty, they can offer none.

To the novice, this is very frustrating. On one hand, you are thrust into an abstruse, complex, expensive, and drawn out process that makes absolutely no sense. On the other, the person you have chosen as a guide in this new world seems to be unable to offer any certainty or explain things in clear, unequivocal terms.

I used to think that, as part of the ritual of being called to the bar, lawyers have to undergo a surgical procedure in which the structure of their brain is physically altered in such a way that makes it impossible for them to use the words “yes” and “no.” It’s systemic—ask a lawyer if they like orange juice, and they’ll launch into a half hour explanation of how oranges are picked, grown, and squeezed—but you won’t get a yes or no out of them.

Then, one day, a lawyer did give me an unequivocal answer—one that seemed sensible, logical, and entirely applicable to our case. So, we followed his advice, and it nearly cost us everything.

It eventually dawned on me that the reason why lawyers seem to live in a perpetual state of indecision is that all they can offer is an opinion. The law is not an exact science, but rather the sum of a myriad contrasting ideas put forward by a myriad contrasting people. Like an old MS-DOS API call, any given set of inputs can result in a completely different output every time.

Armchair lawyering doesn’t help

When you get sued, everybody has an opinion. And, if the lawyers can’t get it right, I’ll let you imagine how valuable the judgment of those who don’t practice law can be.

The worst people are those who make it about right and wrong. The legal system doesn’t care about right or wrong—it cares about legal and illegal, a very different (and somewhat fluid) concept.

Here’s a piece of advice if someone you know gets sued: shut up. You don’t know what you’re talking about, and your armchair lawyering only helps increasing the confusion and anxiety of a person who is already anxious and confused enough.

The same goes for those people on the Internet who can’t help but rally against the injustice of a large company suing a small one into oblivion. I can only hope that a special place in hell is reserved for the coffee-shop activists who keep blaring left and right how Lodsys’s management is nothing but a band of scumbags, how their patents are unfair and just obvious, and so on.

If you want to help those who are hit by these legal threats, let the lawyers do their job, and be a human being. Offer constructive moral support, which they need, and spare them your legal opinions. Being on the other side of these conversations, every time someone offers you an uninformed legal opinion, you only feel incompetent and futile; after all, if everything your opponent does is so unfair and obviously wrong, why do you have to spend hundreds of thousands of dollars and risk everything you own fighting it over long periods of time?

And the worst: Internet lawyers

The absolute lowest common denominator in this entire equation, however, are what I jokingly refer to as “Internet lawyers,” people who profess themselves knowledgeable of the law and dish out advice so bad that it makes me want to cry.

As part of my research, I interviewed several professional lawyers who are not involved in the Lodsys case, and they all gave me exactly the kind of good advice I would expect from a competent practitioner: they laid out all the possible options and then proceeded to illustrate the possible consequences, concluding with a catch-all reminder that, in the end, the entire legal process is highly randomized—a bit like reading a multiple-ending novel written by a slightly schizophrenic author. I consider it a minor privilege, if the story gets published, that I have been able to quote these people and provide some useful information to my readers.

But for every one of these honest people who take the time to give you good counsel, there are ten who are too busy listening to the sound of their own voice and give you absolutely disastrous advice.

The typical example? Those who tell you that you should incorporate or form an LLC to protect yourself from a lawsuit.

That is horrible advice. Incorporation doesn’t protect you or your assets unless you are willing to defend them.

So, when someone tells you to “form an LLC because you can’t be sued,” don’t you believe them for one minute. You can, and you will be sued, and having an LLC won’t shield you from the fact that you still have to pay a lawyer to defend yourself when you get sued, regardless of whether the lawsuit has merit or not.

This is particularly true if you’re a small timer, because there is a fundamental disconnect between your approach to legal matters and the requirements connected with running a corporation, which is a somewhat complex process best handled by a lawyer. In the course of normal business, you will try (justifiably) to limit your legal expenses, and inevitably make a mistake or ten in the way your corporate legal affairs are managed by cutting corners.

If a larger corporation ever decides to sue you, the first thing their lawyer is going to do is subpoena and pour over every single scrap of paper your corporation has ever produced—or has failed to produce— and try to use every little inconsistency or omission as an excuse to pierce the corporate veil and come after you personally.

Now, my experience has been that these tactics rarely work, because the judge will keep your relative sophistications and means in consideration when deciding whether a particular mistake in your corporate conduct should be sanctioned. A one-person corporation that fails to conduct regular board meetings is not, as far as I’ve been able to see, held to the same standards of a multi-million dollar company that does the same.

That, however, won’t save you from wasting a metric truckload of money in making your case and defending against these accusations—and remember, you can’t win a lawsuit if you run out of money before a verdict, which is exactly what oppsing counsel will bank on.

My advice

Am I, then, advocating that incorporation is pointless?

No. I am advocating that it should be part of a broader legal strategy—one that you cannot afford to ignore until the day when Fedex shows up at your door with a nastygram.

And so, I will hand out the kind of advice I wish I had been given when I started my first business: hire a lawyer and establish a mutually-respectful working relationship with them now.

You don’t have to like them, but you do have to respect the fact that what they do is important to the long-term success of your business, even if they don’t contribute directly to your bottom line.

⇥ Fun with… not understanding statistics

Via Daring Fireball, I came across this piece written by Kevin Drum for Mother Jones on how the Wall Street Journal has manipulated an income chart in order to show that the American middle class has all the money. That’s the chart on the left here:

Drum made the chart on the right to show that the upper class, which he defines as anyone who makes more than $200,000 is, in fact, in possession of the bulk of the U.S. wealth.

The problem is, both charts are wrong.

Drum defines the “upper class” as anybody who makes $200,000 based on what the Democrats claim are the targets of their tax laws, which seems perfectly reasonable to me.

Inexplicably, however, after lumping the rich that way, he breaks out every other category individually. In other words, after accusing the Journal to have created an “optical illusion,” he proceeds to do exactly the same thing to prove his point.

That’s not the way this chart should have been drawn. You can’t lump together the statistical groups that are convenient to make your case and fail to do so with the others only because they are not as favourable.

A look behind the numbers

The interesting thing is, there is no need to manipulate the number to prove Drum’s point. You just need to present them the right way.

If we define the “rich” as anyone with income above $200,000, then we need to also define the “poor” and the “middle class.” But how?

According to Wikipedia, the poverty line is established at around $10,000 per person. That’s as arbitrary a number as any, but it is an officially recognized one, so we can use it and at least be on equal footing with the definition of the “rich.” The numbers on the Journal’s chart are not fine-grained enough for this income level, so I decided to use $20,000 instead¹.

We can then further define the “working class” as someone who is above the poverty line but below the median income level (about $40,000—approximated up to $50,000 so that we can use the numbers in the original charts), and “middle class” anyone who makes more than $50,000 but less than $200,000².

Once we do that, the chart appears to agree with the Journal’s interpretation of the facts—the middle class does have more money than any other group:

But that’s still pointless

This, however, brings us to the real issue at hand. The problem with the chart that appears in the Journal is not one of visual trickery, but of conceptual flaw.

Both charts in Drum’s article do not tell us anything useful because they are concerned with classes and not people. Because classes are arbitrarily-defined groups of people, knowing that one owns more of the wealth than the other doesn’t really mean much.

On the other hand, we could see how that translates into individual ownership of wealth—that is, how much of the total pie one person of any given class owns, and this is where things get interesting, because the distribution of members in each of the groups is not linear, as this chart demonstrates:

Now we can get a more accurate picture of how wealthy each individual in the four groups I have defined really is:

As you can see, the average “rich” person owns a much bigger percentage of the total wealth than the average “middle class” person, while the poor owns… well, almost nothing.

This, I presume, is what Drum wanted to demonstrate all along: that while the middle class as a whole may own more wealth than the rich, the average middle class person owns much less than the average rich person—the textbook definition of income inequality.

What does it really mean, though?

Of course, one could take this one step further and wonder what the actual meaning of these charts and the numbers behind them.

After all, the numbers only tell us that the rich are richer than the middle class, and the middle class is richer than the poor—but that’s exactly what the definitions of “poor,” “middle class,” and “rich” tell us, without the need for two pages of calculations.

My personal perspective is that these numbers on their own tell us nothing one way or another. In a capitalist society, it seems to me that opportunity, and not wealth, is the true determinant of fairness. That is, given an equal set of goals, everyone should have the same access to them, without regards to anything other than their abilities. Income inequality then becomes a function—rather than a cause—of an individual’s willingness to roll up their sleeves and make the most of their natural talents.

Obviously, that’s never the case, and wealth undoubtedly plays a factor into the real access to opportunity, but that’s not something that we’re going to learn by looking at charts like the ones published by the Journal, by Drum, or by yours truly.

And now, for some intellectual honesty

I would be remiss if I didn’t alert you to the fact that I didn’t have a lot of time to work on these charts, and had to cobble together data from different sources in a hurry. In some cases, I also had to resort to correlating data from slightly different sets by throwing in an intelligent guess or two.

Therefore, it’s possible that my numbers are off and my conclusions incorrect, though I don’t think that’s the case. Or, to be more precise, my numbers may be slightly off, but the end result should be consistent with reality.